Mrs. Nina T Budina, Mr. Borja Gracia, Xingwei Hu, and Mr. Sergejs Saksonovs
This paper argues that asset price cycles have significant effects on fiscal outcomes. In
particular, there is evidence of debt bias—the tendency of debt to increase over the cycle—
that is significantly larger for house price cycles than stand-alone business cycles. Automatic
stabilizers and discretionary fiscal policy generally respond to output fluctuations, whereas
revenue increases due to house price booms are largely treated as permanent. Thus,
neglecting the direct and indirect impact of asset prices on fiscal accounts encourages procyclical
Ernesto Crivelli, Ruud A. de Mooij, and Mr. Michael Keen
International corporate tax issues are prominent in public debate, notably with the G20-OECD project addressing Base Erosion and Profit Shifting (‘BEPS’). But while there is considerable empirical evidence for advanced countries on the cross-country fiscal externalities at the heart of these issues, there is almost none for developing countries. This paper uses panel data for 173 countries over 33 years to explore their magnitude and nature, focusing particularly on developing countries and applying a new method to distinguish between spillover effects through real decisions and through avoidance —and quantify the revenue impact of the latter. The results suggest that spillover effects on the tax base are if anything a greater concern for developing countries than for advanced—and a significant one.
One difficulty confronting Harberger’s celebrated model of the corporate income tax is how to treat the noncorporate production in primarily corporate sectors and corporate production in primarily noncorporate sectors. This paper presents a two-good model with corporate and noncorporate production of both goods. The incidence of the corporate tax in our Mutual Production Model (MPM) can differ markedly from that in the Harberger Model. The difference between the two models in deadweight loss is also striking, with losses in the MPM over ten times as large as in the Harberger Model.